Market Reacts Negatively to Week of Prominent Catalysts

Last week, the S&P 500 futures experienced a significant development as they fell below the much-awaited psychological level of 4,100. Throughout the trading sessions in February, the index remained steady above the 4,100 level, leading to a consolidation in its price action. Typically, when an index trades sideways, it is an indication of Wall Street’s significant players unloading and then initiating new positions. Once the range breaks, it can trigger a more substantial move.

During the extended weekend due to Presidents Day, the S&P 500 futures were unable to regain the critical 4,100 level. Subsequently, there was a minor decline, causing the index to lose the 21-day exponential moving average (EMA) at 4,081. The loss of these essential levels heightened the market’s vulnerability leading up to the cash session open, which promised to be a week full of catalysts.

Selling Volume Increases at Market Open

Following the opening bell, there was a notable absence of buying pressure, and the market promptly yielded to the increasing selling volume. As the previously listed support levels were breached, the path of least resistance pointed downwards, given that these levels could potentially serve as resistance to further market advances.

Despite the U.S. Services and Manufacturing Purchasing Managers Index (PMI) performing better than expected, the market began a steady descent. This event can be an indication of a market with a distinct purpose as smaller occurrences, such as the PMI report, do not appear to impact the market. The market seemed determined to move lower unless the PMI report turned out to be astonishingly exceptional.

The market exhibited a steady and consistent downward movement, which occurred without any significant signs of panic in the price action. This outcome suggests that the move was supported by substantial funds, as retail traders can often exacerbate a decline by reacting in panic. However, there was no such panic observed at this point. There could be a couple of reasons for this lack of panic, including the series of economic events scheduled in the upcoming days and the overall positive market sentiment at the start of the year, which has been widely agreed upon by the consensus.

The S&P 500 futures hit their daily low at approximately 4,000, which represents another psychological level above the 50-day simple moving average (SMA) of 3,996.5. A breach of these levels may potentially trigger a panic, particularly if it happens amidst an impending market catalyst. The 4,000 level is currently serving as the critical threshold for future market movements.

Levels in Play Ahead of FOMC

With a volatile day expected to be in store tomorrow, a couple of targets for the S&P 500 futures include some levels of liquidity. Below the 4,000 level is the 200-day simple moving average (SMA) at 3,950.5. Above the current market price is the 21-day EMA at 4,081 and the psychological level of 4,000. If both levels break, the 15-day SMA is above 4,120. 

FOMC is Tomorrow 

One of the more significant economic catalysts this week is the Federal Open Market Committee (FOMC) meeting at 2 p.m. Eastern tomorrow. This meeting will give insight into forward projections on rate decisions and will likely move the market at the time of the release of the meeting notes.  

Big Semiconductor Has Earnings Tomorrow 

After the closing bell tomorrow, Nvidia (NVDA) is scheduled to release its Q4 2022 balance sheets, which will comprise revenue figures, earnings-per-share (EPS), and forward guidance. Given the significance of NVDA in the semiconductor industry, this report could potentially affect how other semiconductor stocks trade in the following days after the earnings release. Additionally, the report may influence the Nasdaq and other technology stocks’ trading activities throughout the remainder of the week.

Market Trends Lower to Begin the Week

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 1.92%, losing 78 points, while the Nasdaq futures closed down 2.25%, falling 279 points. The Dow Jones futures followed, closing down 2.02%, a loss of 680 points.